H&S Pattern Points to Drop to 1.1950

The pair will likely have a bearish breakout in the coming days.

Bearish View

• Set a sell-stop at 1.2025 and a take-profit at 1.1950.
• Add a stop-loss at 1.2160.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2145 and a take-profit at 1.2250.
• Add a stop-loss at 1.2050.

The GBP/USD price moved sideways on Wednesday as investors continued reacting to the upcoming US inflation data. The pair dropped to a low of 1.2067, which was lower than this month’s high of 1.3000.

US Inflation Data

The GBP/USD pair retreated slightly on Wednesday morning as the market refocused on the upcoming US inflation data. Inflation is an important part of the economy since it forms part of the Federal Reserve’s dual mandate.

Consumer and producer prices have been in a strong upward trend in the past few months. This growth was attributed to the rising price of fuel and the ongoing supply shortages. The lockdowns in China and the ongoing flight chaos have fueled higher prices.

Recently, however, there are signs that inflation has eased slightly in the past few weeks. For example, the price of gasoline has dropped to about $4 in most parts of the country. At the same time, many retailers like Target and Walmart have expressed concerns about their inventories.

Further, commodities like copper and iron ore have declined while house inventories has risen. It is against this backdrop that analysts expect that US inflation dropped modestly in July even though they expect it to remain above the Fed’s target of 2.0%.

Economists expect that the headline CPI dropped from 9.1% to 8.7% in July. Excluding the volatile food and energy prices, they believe that inflation rose slightly. American bond yields retreated slightly ahead of these numbers. Yield of the 10-year government bonds declined to 2.7%.

Meanwhile, there are concerns about the cost of living in the UK. British households are expected to spend more than 4.4k pounds a year on energy, according to Cornwall Insight. This will be a major shock to households that have seen wages grow at a slower pace.

GBP/USD Forecast

The GBP/USD pair declined slightly ahead of the latest US inflation data. It has moved slightly below the 25-day and 50-day moving averages while the MACD has moved below the neutral point. The pair has also moved substantially below the important resistance point at 1.2291.

At the same time, it has formed a small head and shoulders pattern. Therefore, the pair will likely have a bearish breakout in the coming days. If this happens, the next key support point to watch will be at 1.1950.

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